Most retailers miss July sales expectations

Most U.S. retailers posted weaker-than-expected July sales on Thursday, hurt by a delayed back-to-school shopping season and high gas prices that cut consumers' trips to the mall.

According to tracking firm Retail Metrics, 61 percent of retailers missed expectations that had already been lowered, with 39 percent exceeding forecasts.

Wal-Mart Stores Inc., the world's largest retailer, said sales at stores open at least a year rose 1.9 percent in July after it cut prices on back-to-school items to drive shoppers into its stores. The increase was better than analysts had expected and toward the top end of the company's forecast.

Wal-Mart said it was encouraged by positive early signs in its back-to-school categories, but its apparel and home businesses continued to be soft and are expected to remain so through the third quarter.

Retail Metrics' same-store sales index averaged a gain of 2.9 percent in July, beating the research firm's estimate of up 2.8 percent, but missed forecasts when excluding Wal-Mart and a boost from drug store sales.

A majority of U.S. retailers in our index fell short of lowered expectations, particularly in soft line areas of specialty and teen apparel, said Retail Metrics president Ken Perkins.

Analysts did not have high hopes for apparel retailers in July due to very hot weather in some areas and the increasing tendency of some shoppers to time their purchases with tax holidays or wait until school starts to see what other kids are wearing first.

Consumers do shop closer and closer to need, so August may be more indicative of the season as a whole, said MFC Global analyst Sarah Henry.

While AnnTaylor's LOFT chain and Kohl's struggled with merchandise problems, a more common complaint among mall-based stores was weak customer traffic, which Needham & Co. analyst Christine Chen said was due to high gasoline prices limiting consumers' trips to the mall.

Cooler temperatures in the Northeast and Upper Midwest benefited home retailers and restaurants at the expense of specialty apparel and general merchandise retailers.

While sultry July weather heated up seasonal demand for items such as air conditioners in the West and Northern Plains, sales for those items were not as strong compared to last year's record heat wave, according to the weather tracking firm Planalytics.

However department stores, especially those like Nordstrom Inc. and Saks Inc., which cater to high-end shoppers, continued to shine, showing that luxury consumers are not pulling back.

Nordstrom said its July sales were boosted by a sales event and led by strong demand for women's designer apparel, women's shoes, men's apparel, and accessories.

Mid-tier department store Kohl's reported flat comparable store sales, hurt by disappointing sales of seasonal clothing, and J.C. Penney said it expects lower August comparable store sales, hurt by the first week in August, a busy back-to-school week, being reported in the July period.

ECONOMIC WORRIES

Retail sales have been trending lower this year as weakness in the housing market ripples through the economy and high fuel prices gulp more of shoppers' budgets. Markets have been hammered in recent weeks amid concerns over subprime mortgages, anemic U.S. jobs growth and uneven corporate earnings reports.

The trend has raised concerns about whether the strength of consumer spending, which accounts for about two-thirds of U.S. economic activity, will hold up.

I would start to look for much weaker numbers as people come to the grips with the fact that the value of their house is going down, energy prices continue to be high and access to credit is a lot more difficult, said Farr Miller Washington analyst Keith Davis.

Apparel stores Talbots and AnnTaylor cited the overall economy as the reason customers are spending less in their stores and cautioned conditions remain uncertain for the second half of the year.

Discounters that sell general merchandise, including Target Corp. and Costco Wholesale Corp., reported July sales that were better than analysts expected, with Costco citing strong sales of televisions, digital cameras and the latest Harry Potter book release.